Barrons: Louis-Vincent Gave, co-founder of Gavekal Research, has been warning investors about a paradigm shift in the world order. Specifically, Gave says the assumptions underpinning financial assets need to be rethought due to a move toward a multipolar world and away from one dominated by the U.S. and the dollar. His message seems especially germane now, given Russia’s invasion of Ukraine, the West’s dramatic sanctions, and China’s attempts to support Russia without jeopardizing its economic ties with the West.
Gave recently spoke with Barron’s from his office on Canada’s Vancouver Island about why China could emerge as a relative winner from the war in Ukraine. He also explained why long-held assumptions about globalization and the dollar’s dominance need to be reassessed, and why it isn’t yet time to buy stocks, even after their correction. An edited version of the conversation follows.
Barron’s: What is the likely fallout for investors from Russia’s invasion of Ukraine?
Louis-Vincent Gave: We have two crises. The sanctions on Russia have turned an already precarious energy situation into a full-blown crisis. From there, we’re going to have a problem with food costs, which will lead to riots, political uncertainty, and the rise of populist parties in democracies. And we have an unfolding financial crisis. Financial markets are based on trust and everybody playing by the same set of rules. In war, trust collapses and rules change quickly.
The big question is whether the Western world blocking Russia’s foreign reserves and saying, “You thought this money was yours; turns out it isn’t,” acts as an accelerant for a change in the global financial architecture such as we have known it in the post–Bretton Woods era—where all trades are denominated in U.S. dollars, and foreigners earn U.S. dollars and recycle those into U.S. Treasuries, allowing the U.S. to run very large twin deficits with no constraints.
